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14 June 2012

FX talkING
INGs view on the major bullish and bearish currency themes
Whatever the outcome of Greek elections it looks like any new government will try to re-negotiate the terms of its bail-out. This will not be easy and will be taking place at a time when Germany is also being asked to accede to banking and fiscal union. The ECB will have to help. Sell EUR into any rally.

USD/Majors (4 Jan 08=100)

160 140 120 100 80 60 08 09 10 11 12 Stronger USD JPY GBP EUR 160 140 120 100 80 60

ING FX forecasts
EUR/USD 1M 3M 6M 12M 1.22 1.18 1.15 1.20 EUR/CHF 1M 3M 6M 12M 1.20 1.20 1.20 1.20 USD/RUB 1M 3M 6M 12M
Source: ING

USD/JPY 80 81 84 90 AUD/USD 0.98 0.95 0.92 0.92 USD/BRL 2.07 2.05 2.00 1.90

EUR/GBP 0.80 0.78 0.75 0.77 EUR/PLN 4.43 4.35 4.26 4.10 USD/CNY 6.38 6.40 6.42 6.40

Source: Reuters, ING

EM FX (4 Jan 08=100)
180 160 140 120 100 80 08 09 10 11 12 $/TRY $/CNY Stronger EM FX $/BRL /PLN 180 160 140 120 100 80

32.90 33.80 33.00 32.10

FX performance
EUR/USD %MoM %YoY -2.3 -12.2 EUR/HUF %MoM %YoY
Source: Reuters, ING

USD/JPY -0.6 -1.5 EUR/CZK 0.8 5.8

GBP/USD -3.2 -4.6 USD/RUB 6.8 16.5

EUR/NOK -1.0 -4.3 USD/BRL 4.4 29.6

NZD/USD 0.3 -4.1 USD/KRW 1.2 7.4

USD/CAD 2.0 5.0 USD/CNY 0.8 -1.7

Source: Reuters, ING

1.8 11.6

FX Strategy

Chris Turner
Head of Foreign Exchange Strategy London +44 20 7767 1610

Tom Levinson
Foreign Exchange Strategy London +44 20 7767 8057 View all our research on Bloomberg at ING5<GO>


FX talkING

June 2012

Developed markets
Assessing the chances of a short squeeze
1.60 1.50 1.40 1.30 1.20 1.10 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 1.60 1.50 1.40 1.30 1.20 1.10

Current spot: 1.26

Investors are clearly very short EUR ahead of major event risks
over coming weeks. While a Syriza victory in the Greek election would be alarming, even such an outcome would probably still see a continuation of muddle-through policies given that all the major Greek political parties are now intending to re-negotiate the memorandum with the Troika.

Elsewhere, the Eurogroup meeting (21st) and the EU leaders summit

(28 ) could make progress on the Banking Union which could again trigger the kind of short squeeze that EUR/USD and European equities enjoyed on the back of the ECBs first LTRO in January.

However, any EUR/USD rally should prove short-lived ahead of a

possible July ECB rate cut and more aggressive liquidity measures in 3Q. An orderly EUR/USD decline to 1.15 remains our call.

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 1.22 (1.256)

3M 1.18 (1.257)

6M 1.15 (1.258)

12M 1.20 (1.262)

Chris Turner, London +44 20 7767 1610

USD/JPY cheap, but needs a catalyst
110 100 90 80 ING f'cast 70 Jan08 Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 70 110 100 90 80

Current spot: 79.3

There were strong suggestions that the BoJ were checking rates
when USD/JPY fell below 78.00 at the start of June. Japanese authorities know that Washington frowns on their unilateral intervention but it is a risk Tokyo is prepared to take to safeguard confidence after the Nikkei 225 fell 20% between April and May.

With inflation very close to zero, the BoJ is struggling to deliver

the negative real interest rates being employed in other major economies. Were the DPJ government to make progress on the consumption tax bill, employing a two-stage hike to 10% by 2015, the BoJ could embark on more aggressive policy, hitting the JPY.

Source: Reuters, ING

Fed policy looks unlikely to support USD/JPY much in the short

term. No major policy changes are seen at the 20 June FOMC.
1M 80 (79.24) 3M 81 (79.17) 6M 84 (79.04) 12M 90 (78.69)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

BoE ready to employ more QE?
2.10 1.90 1.70 1.50 1.30 Jan08 2.10 1.90 1.70 1.50 1.30

Current spot: 1.55

Ever since the BoEs May inflation report, speculation has been
building that the BoE will pursue more QE. Its most recent purchases under the Asset Purchase Programme (APP) peaked at 325bn in February. With the Eurozone crisis now dragging UK confidence indices lower, we look for the BoE to re-start APP at the 5 July MPC meeting. With the BoE moving and the Fed on hold, GBP/USD should remain pressured.

ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13

GBP/USD also remains caught in the cross currents of the

EUR/USD move. Speculative positioning is far lighter against GBP than the EUR, suggesting that GBP/USD is less susceptible to a short squeeze should EU politicians manage to outline a framework for a master plan at the 28 June summit.

Source: Reuters, ING

1.58/1.60 may prove the best case for the remainder of the year.
1M 1.53 (1.550) 3M 1.51 (1.549) 6M 1.53 (1.549) 12M 1.56 (1.548)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610 2

FX talkING

June 2012

Scope for marginal new lows
175 155 135 115 95 75 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 175 155 135 115 95 75

Current spot: 99.6

While European leaders may make some progress at summits

over coming weeks, there is no quick fix to the European crisis. Greece may ultimately require another debt write-off (this time for the official sector) and the background for these discussions is a Eurozone contracting at a 1.4% QoQ annualised rate in 2Q12.

So there is no way to sound the all clear on the crisis and

EUR/JPY should stay vulnerable primarily because Japan is a large net creditor after years of current account surpluses and repatriates its overseas assets in times of stress.

We see scope for EUR/JPY to again fall close to 95 over the next
three months. However, USD/JPY at 78 and EUR/JPY at 95 will trigger alarm bells in Tokyo, warning of verbal intervention and perhaps even the stealth FX intervention seen last November.
3M 95.6 (99.5) 6M 96.6 (99.4) 12M 108.0 (99.3)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 97.6 (99.5)

Chris Turner, London +44 20 7767 1610

Corrective rally should prove short-lived
1.00 0.95 0.90 0.85 0.80 0.75 0.70 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 1.00 0.95 0.90 0.85 0.80 0.75 0.70

Current spot: 0.81

In terms of currency wars in the developed market space, we

believe the BoE is one of the most active practitioners, trying to keep GBP weak to rebalance the economy in favour of the external sector. And another round of QE on 5 July will be an attempt to cheapen GBP again.

However, the challenges facing the Eurozone are far larger than
those facing the UK. Reserve diversification away from the EUR should prove a major theme over the next two years, with GBP weightings in reserve portfolios likely to be increased again, alongside currencies like AUD, CAD and also NOK and SEK.

Long-term fair value for EUR/GBP is seen near 0.80. The need for
a substantial EUR risk premium should see EUR/GBP trade 0.75.

Source: Reuters, ING ING forecasts (mkt fwd) 1M 0.80 (0.810)

3M 0.78 (0.811)

6M 0.75 (0.812)

12M 0.77 (0.815)

Chris Turner, London +44 20 7767 1610

Floor to hold
1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00

Current spot: 1.20

The SNB is showing no signs that it is prepared to let the 1.20

floor give way. The floor was first seriously tested in May, with the SNB forced to buy EUR50bn in its defence. However, the SNB can leave this intervention unsterilized since it is consistent with the SNBs anti-deflationary policy. Only if inflation starts to rise and the SNB were to start paying potentially higher sterilization costs than it would earn on its FX reserves, would massive FX intervention turn into a major budgetary headache.

Despite a strong CHF, the Swiss economy is actually doing quite

well. The SNB recently revised its 2012 growth forecast above 1% and exports are yet to collapse.

Source: Reuters, ING ING forecasts (mkt fwd) 1M 1.20 (1.200)

We see EUR/CHF flat-lining at 1.20 into 2013.

3M 1.20 (1.199) 6M 1.20 (1.196) 12M 1.20 (1.191)

Chris Turner, London +44 20 7767 1610

FX talkING

June 2012

NOK Safe-haven rally vs oil price sell-off
10.0 9.5 9.0 8.5 8.0 7.5 7.0 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 10.0 9.5 9.0 8.5 8.0 7.5 7.0

Current spot: 7.51

NOK remains weaker than it was prior to Norges Banks rate cut
to 1.50% in March. This keeps the pressure off the central bank to make policy changes at its 20 June meeting. With inflation low and EU17 uncertainty high it should maintain a projection for rates unchanged at 1.50% for the next twelve months.

Activity in Norway is resilient with GDP growth this year above 2%

set to be the highest within developed Europe. Norways forward looking PMI is comfortably in growth territory at 55.

As anticipated, NOK resilience is impressive, remaining in a 7.507.65 range for three months. Brent oil at US$100/bbl argues for EUR/NOK above 7.80. NOK is a safe-haven, yet in extreme market turmoil could fall vs EUR due to a lack of liquidity. A more benign scenario of just weak EU17 growth could see EUR/NOK test 7.40.
3M 7.70 (7.54) 6M 7.50 (7.58) 12M 7.70 (7.65)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 7.60 (7.52)

Tom Levinson, London +44 20 7767 8057

SEK resilience underestimated
12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0

Current spot: 8.84

An abrupt break higher of EUR/SEK to 9.15 in mid-May, out of its

prior five-month range, raised the possibility of a trend decline in SEK. However, the krona has since recovered, particularly in the aftermath of Spains bank bailout. Given the reaction to Spains deal is rather negative this underlines SEKs safe-haven status.

The Swedish economy is finely balanced. At 0.8% QoQ, 1Q GDP

was double the Riksbanks estimate, but the PMI is in contraction (ie, sub-50) for the first time since Dec. Although core inflation of just 0.9% YoY affords the Riksbank flexibility we doubt it will make a major policy alteration at its 4 July policy-meeting.

SEK is historically rich. In an outright market collapse SEKs

limited liquidity might trump its safe-haven status (ie, EUR/SEK rises). But a more benign EU17 scenario can see EUR/SEK slide.

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 9.00 (8.85)

3M 9.20 (8.87)

6M 9.00 (8.90)

12M 9.30 (8.97)

Tom Levinson, London +44 20 7767 8057

7.43 line in the sand
7.48 7.47 7.46 7.45 7.44 7.43 7.42 7.41 7.40 7.39 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 7.48 7.47 7.46 7.45 7.44 7.43 7.42 7.41 7.40 7.39

Current spot: 7.43

With EUR/DKK falling to record lows near 7.43, the Danish central
bank returned to the market in May to intervene in FX markets for a first time in 2012. Intervention in May totalled DKK30bn, taking total FX reserves to DKK500bn.

Having slowed but not reversed EUR/DKKs decline, the central

bank was forced to follow up with two surprise rate cuts (10bp on 24 May and 15bp on 31 May) taking its lending rate to just 0.25%. Historically Danish rate moves have tracked the ECBs. No more.

Denmarks economy exited recession with a decent 1Q expansion

of 0.3% QoQ, but the firm priority is halting the EUR/DKK decline. 7.43 is a line in the sand for the central bank but an unfavourable Greek election result would see this broken. For the first time the central bank has raised the possibility of negative interest rates.
3M 7.427 (7.418) 6M 7.425 (7.408) 12M 7.435 (7.393)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 7.430 (7.427)

Tom Levinson, London +44 20 7767 8057

FX talkING

June 2012

CAD resilience supported by BoC mild hawkish stance
1.30 ING f'cast 1.20 1.10 1.00 0.90 Jan08 Mkt Fwds 1.20 1.10 1.00 0.90 Jan09 Jan10 Jan11 Jan12 Jan13 1.30

Current spot: 1.03

The statement to the BoCs 5 June unchanged 1% rate decision

retained a mild hawkish bias. This is arguably at odds with a view that some of the risks around the EZ crisis are materializing. The BoC is dismissive of slightly slow 1Q GDP of 1.9% QoQ annualised, and is more concerned with the unbalanced composition of growth.

Our central assumption is that CAD remains relatively insulated

from events in Europe, from a trade perspective and its sensitivity to financial market sentiment. That said the soft US labour market is a concern if representative of a US economy losing momentum. Canada has returned to a trade deficit for a first time in six months with exports to the US now falling for four straight months.

Source: Reuters, ING

Outside of JPY, CAD is the G10 best performer vs USD in 2Q.

But US$100/bbl Brent oil is consistent with USD/CAD nearer 1.05.
1M 1.02 (1.027) 3M 1.02 (1.028) 6M 1.02 (1.030) 12M 1.00 (1.033)

ING forecasts (mkt fwd)

Tom Levinson, London +44 20 7767 8057

Downside risks prevail
1.10 1.00 0.90 0.80 0.70 0.60 Jan08 ING f'cast Mkt Fwds 0.60 Jan09 Jan10 Jan11 Jan12 Jan13 1.10 1.00 0.90 0.80 0.70

Current spot: 0.99

The RBAs easing cycle is in full swing. A 25bp cut to 3.50% on 5

June follows Mays 50bp move. This is no surprise given tough fiscal tightening. The RBAs June statement attributes recent AUD falls to lower commodities, risk aversion and domestic rate cuts. The latter was engineered by the government to foster AUD losses.

Yet domestic data flow is encouraging. Putting to one side a twospeed economy, 1Q GDP grew an exceptional 1.3% QoQ, driven by investment and consumption. The economy added 35k jobs in May. 2Q CPI data on 25 July will be key for policy easing near term.

A 7 June PBOC rate cut reduces fear of a China growth recession

and its impact on AUD. ING sees 50bp more of PBOC cuts. Risk aversion warns of renewed AUD losses near-term, but offsetting this is talk that the Bundesbank will purchase AUD assets.
3M 0.95 (0.986) 6M 0.92 (0.980) 12M 0.92 (0.968)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 0.98 (0.992)

Tom Levinson, London +44 20 7767 8057

Impressive resilience
0.95 0.85 0.75 0.65 0.55 0.45 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 0.95 0.85 0.75 0.65 0.55 0.45

Current spot: 0.78

It is surprising to see NZD as the top performer in G10 FX year-todate (vs USD), essentially unchanged. NZD is generally seen as highly sensitive to overall risk sentiment. We attribute much of its resilience to a strong domestic demand outlook, courtesy of a substantial boost to come from post-earthquake reconstruction.

NZD/USDs 5% fall since early May has seen the RBNZ remove a
prior slightly hawkish stance. Along with risks to the global growth, stimulative 2.50% rates are now deemed appropriate until mid2013 according to its latest forecasts. A tough budget, aiming for a surplus in FY14/15, and a fall in the PMI below 50 for a first time this year justify a cautious stance.

Source: Reuters, ING

A stabilisation in falling dairy prices helps NZD terms-of-trade,

while domestic demand strength dampens NZD vulnerability.
1M 0.77 (0.776) 3M 0.75 (0.773) 6M 0.73 (0.769) 12M 0.72 (0.760)

ING forecasts (mkt fwd)

Tom Levinson, London +44 20 7767 8057

FX talkING

June 2012

Emerging markets
Fragile FX and resilient FI market
5.0 4.5 4.0 3.5 ING f'cast 3.0 Jan08 Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 3.0 5.0 4.5 4.0 3.5

Current spot: 4.31

In case of strengthening tensions in the EU17, the EUR/PLN

levels to watch would be 4.40-4.50 (late-2011 NBP interventions), and 4.60 (2011 top). However, in case of a more serious crisis, we would expect NBP to wait for the market to stabilise before considering defending any level. It is the BGK that could smooth a potential PLN depreciation trend, selling EU funds in the market.

Foreign presence in local currency bonds is a risk for the PLN. So

far, the market has ignored EU17 trouble altogether, with yields at 5Y lows. A break of 4.50/ can trigger a short-term sell-off, mainly by unhedged investors or liquidity-constrained EU banks. MinFin has covered of 2012 needs and prepared for financing issues.

Source: Reuters, ING

The GDP slowdown will prevent hikes, but the MPC is likely to
stay hawkish, given elevated CPI.
1M 4.43 (4.33) 3M 4.35 (4.36) 6M 4.26 (4.41) 12M 4.10 (4.48)

ING forecasts (mkt fwd)

Rafal Benecki, Warsaw +48 22 820 4696

High sensitivity on international sentiment remains
340 320 300 280 260 240 220 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 340 320 300 280 260 240 220

Current spot: 297.3

High volatility within the 290-310 range is set to remain in coming

months, driven by EUR/USD and the IMF negotiation progress. 310-330/ would be a deep EMU crisis scenario range, at which stage the government would react with an acceleration on its negotiations with the IMF.

The progress so far is limited to the encouraging signals from the

government, mulling such a change of NBH law that the negotiations could start in July-August. We still expect the completion of the deal in the autumn. The NBH tries to balance the needs of the slowing economy with the potential HUF pressure. We do not see rate changes before the IMF deal.

Source: Reuters, ING

Given the reliance of the economy on external demand, any HUF

strength is unlikely to extend beyond 285.
1M 300 (298.7) 3M 295 (301.4) 6M 285 (305.0) 12M 285 (310.5)

ING forecasts (mkt fwd)

David Nemeth, Budapest +36 1235 8800

CZK safe haven?
30 29 28 27 26 25 24 23 22 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 ING f'cast Mkt Fwds 30 29 28 27 26 25 24 23 22

Current spot: 25.53

A 1% 1Q GDP contraction and bleak economic outlook, plus an

expected negative contribution to growth from planned fiscal restriction measures (in 2013) increase the chance of further CNB cuts. The expected export slowdown and decrease in CNB rates by 25-50bp by end 2012 fuels our expectation of a weaker CZK over a three-month horizon.

We do not rule out a move toward a Greek exit being viewed

positively for CE3 FX, but empirical evidence suggests any safehaven related fall in EUR/CZK would be temporary at best. If so, we believe it would be a good opportunity to go long EUR/CZK, assuming a dramatic rebound perhaps in the order of 30%.

Source: Reuters, ING

Greek elections pose a sizable risk for our CZK forecast, especially
if the result intensifies speculation of a Greek exit from the EU17.
1M 26.0 (25.5) 3M 26.5 (25.6) 6M 25.7 (25.6) 12M 25.5 (25.6)

ING forecasts (mkt fwd)

Vojtech Benda, Prague +420 257 474 432 6

FX talkING

June 2012

Weaker RON in spite of firm NBR support
4.75 4.45 4.15 3.85 3.55 3.25 Jan08 ING f'cast Mkt Fwds 3.25 Jan09 Jan10 Jan11 Jan12 Jan13 4.75 4.45 4.15 3.85 3.55

Current spot: 4.46

NBR continued to support the RON in May, using about 0.6bn

about double that in an average month of the past crisis years, but half the amount used in the peak months. Such restraint makes us revise our EUR/RON path slightly upwards, in line with the recent underperformance of Romanias CDS vs regional peers.

Gaining a bit less than 50% votes in the local elections, the ruling
alliance USL received a touch less than recent polls hinted. There are hints USL is preparing to impeach the president, which might consolidate its position ahead of November general elections.

1Q12 GDP details were soft with sequential growth coming from
inventories, investment and external trade. These are unlikely to provide an additional tailwind going forward and support our call that 2Q12 may be the third consecutive quarter of contraction.
3M 4.50 (4.51) 6M 4.60 (4.54) 12M 4.55 (4.58)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 4.50 (4.47)

Vlad Muscalu, Bucharest +4021 209 1393

Kuna remains tightly managed
7.80 7.70 7.60 7.50 7.40 7.30 7.20 7.10 7.00 Jan08 Jan09 Jan10 Jan11 Jan12 ING f'cast Mkt Fwds Jan13 7.80 7.70 7.60 7.50 7.40 7.30 7.20 7.10 7.00

Current spot: 7.55

The kuna is tightly managed against the euro with lower volatility
compared to its peers.

HRK-specific negative factors include a deteriorating foreign trade

balance, company deleveraging, bank provisioning and higher dividend payments to non-residents and monetary easing in place since 9 May. On the positive side: June is likely to bring in 700m more tourism inflows month-on-month. YTD Croatia has already secured HRK9bn and US$1.5bn in refinancing, and 110m in FX were released through changes in MRR and local liquid financial institutions.

Moodys changed Croatias Baa3 Rating outlook to negative from

stable, citing low medium-term growth prospects, implementation risk to Croatias deficit reduction plan and a constrained export sector.

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 7.55 (7.549)

3M 7.56 (7.561)

6M 7.57 (7.584)

12M 7.57 (7.651)

Elena Ganeva, Sofia +3592 917 6720

Political stalemate detrimental for dinar
120 110 100 90 80 70 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 120 110 100 90 80 70

Current spot: 116.9

A government coalition between the incumbent Democrats (2nd in

20 May elections) and the Socialists (3 ) was perceived as the most likely election outcome, yet has failed so far over disagreements on needed austerity measures as well as on a third partner.

Delay in forming a government has left Serbia high on the investor

risk radar screen. The new government will need to proceed urgently with fiscal consolidation and resume IMF talks. Unfreezing of IMF SBA is needed to ease external refinancing given the relatively high C/A deficit (8.3% expected in 2012).

SNB increased the key rate by 50bp to 10% and released some
200m FC reserve liquidity through reserve requirement changes while withdrawing dinar liquidity. The dinar recovery was shortlived, and we revise our /RSD forecast path higher.
3M 114 (117.1) 6M 112 (117.3) 12M 112

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 117 (117.0)

Elena Ganeva, Sofia +3592 917 6720

FX talkING

June 2012

EUR weakness would bring new USD/RUB highs
37.5 35.0 32.5 30.0 27.5 25.0 22.5 Jan08 ING f'cast Mkt NDF Jan09 Jan10 Jan11 Jan12 Jan13 37.5 35.0 32.5 30.0 27.5 25.0 22.5

Current spot: 32.6

The RUB has been hit hard by the recent market turmoil, falling by
c.12% from 2012 highs. Yet, the RUB performance has been in line with many EMEA peers, losing 1.3% YTD vs USD.

The CBR has turned its selling mode on since late May,
stepping in with US$70-200m of daily interventions and having in total sold US$1.16bn, ie, making a 5 kopeck corridor upshift likely. With oil struggling to hold above the US$100/bbl level and ING scaling back its 2012 Brent forecast from US$115-120/bbl to US$100-105/bbl, the C/A support to the RUB will be lower.

On top of this, capital outflows seem to have continued, which

stands behind our revision to the RUB forecast. We now see RUB within 36-36.50/basket in 3-6 months with more sizable losses vs the USD (33-34) given INGs call for 1.15-1.18 EUR/USD trading.
3M 33.8 (33.1) 6M 33.0 (33.6) 12M 32.1 (34.6)

Source: Reuters, ING

ING forecasts (NDF)

1M 32.9 (32.7)

Dmitry Polevoy, Russia +7 495 771 7994

Exchange rate volatile, but under control
10 9 8 7 6 5 4 Jan08 ING f'cast Mkt NDF Jan09 Jan10 Jan11 Jan12 Jan13 10 9 8 7 6 5 4

Current spot: 8.08

Withdrawal of funds by non-resident portfolio investors increased

volatility in the FX market thus increasing the UAH depreciation trend in May.

The NBU intervened in the market to reduce excessive demand

for foreign currency. This caused a 2.9% MoM reduction in FX reserves in May. However, the volume of reserves is still sound for supporting exchange rate stability over the next 4-6 months

Fundamentals do not look bad for UAH in the near-term. The sum
of the current and capital accounts improved in April and stayed a positive US$0.5bn. We reiterate our view for a moderate UAH depreciation kick-starting after parliamentary elections are concluded in October. We expect USD/UAH to be trading above 8.40 by year-end.
3M 8.09 (8.47) 6M 8.37 (9.10) 12M 8.53 (9.91)

Source: Reuters, ING

ING forecasts (NDF)

1M 8.09 (8.16)

Alexander Pecherytsyn, Kyiv +38 044 2303017

Keep it to save, not to earn
155 150 145 140 135 130 125 120 115 Jan08 Jan09 Jan10 Jan11 Jan12 ING f'cast Mkt NDF Jan13 155 150 145 140 135 130 125 120 115

Current spot: 149.0

The KZT has been recently confirming its status as a defensive

emerging market currency, losing only 1% YTD vs USD irrespective of any crude and global market swings.

High oil prices inflated Kazakh trade balance to US$17bn in

4M12, suggesting that the KZT was retaining fundamental support from the commodities market.

Stable export proceeds have continued to support the National Oil

Fund (rising from US$51bn to US$51.6bn in May-12), while on the back of falling net FX-reserves from US$34.5bn to US$33.8bn.

With lower INGF for oil prices for 2012-13, we are skewing our
KZT forecast towards further gradual weakening up to 150/USD in 2012 with some mild appreciation coming only in 1H13.
3M 149.5 (149.4) 6M 150 (150.1) 12M 148 (152.0)

Source: Reuters, ING ING forecasts (NDF) 1M 149.2 (149.0)

Dmitry Polevoy, Russia +7 495 771 7994

FX talkING

June 2012

Tight policy continues to support TRY
2.1 1.9 1.7 1.5 1.3 1.1 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 2.1 1.9 1.7 1.5 1.3 1.1

Current spot: 1.82

CBT reserves fell by US$2.3bn in May before recovering back to

US$79.9bn as of 12 June (up by US$1.9bn). Yet in the same period although we have seen TRY depreciate, its depreciation was similar to BRL and much less significant than its other peers (eg, RUB, MXN, ZAR, PLN, etc). Furthermore, as of 12 June, the FX basket fell back to end-April levels again.

CBTs frequent additional tightening, which pulled the average

cost of CBT OMO short term funding to 9.7% in May from 8.8% in April, as well as extended flexibilities on FX liquidity management & RRRs, seems to cap currency volatility in general.

Overall, short-term risks on USD/TRY remain linked to EUR/USD

volatility the most. But tight policy and relatively weaker external debt redemptions might support TRY against EUR:USD basket.

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 1.88 (1.83)

3M 1.86 (1.86)

6M 1.84 (1.89)

12M 1.75 (1.96)

Sengl Dadeviren, Istanbul +90 212 329 0752

Will the SARB turn more dovish?
11 10 9 8 7 6 5 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 11 10 9 8 7 6 5

Current spot: 8.41

The 2012 ZAR sell-off gained momentum in May as the Eurozone

outlook deteriorated. Beyond an at best uncertain prognosis for the Eurozone, the SARB notes slowing growth amongst major emerging markets and deteriorating terms of trade. This should continue to weigh on the mining sector and output.

While the SARB officially is concerned by upside risks to inflation

posed by further weakening in the ZAR, it feels this risk is partially offset by weaker oil prices. Indeed, the SARB has recently cut its inflation forecasts, now forecasting that CPI peaked at 6.1% in April.

The FRA market prices a 50bp SARB rate cut by year-end. And a
weaker ZAR might be a useful safety valve. The scope to hike rates looks limited given union threats to nationalise the SARB.
3M 8.30 (8.52) 6M 8.25 (8.63) 12M 8.25 (8.82)

Source: Reuters, ING ING forecasts (mkt fwd) 1M 8.50 (8.45)

Chris Turner, London +44 20 7767 1610

BoI ready to cut rates?
4.5 4.2 3.9 3.6 3.3 3.0 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 4.5 4.2 3.9 3.6 3.3 3.0

Current spot: 3.88

USD/ILS continues to trade as a risk-sensitive pair and remains

vulnerable to any further equity market weakness this summer. Even though inflation remains well-anchored in the middle of the BoIs 1-3% range and growth should print in excess of 3% this year, the BoI is ready to cut should the European situation take a turn for a worse. Markets price a 25bp cut for the 25 June meeting.

However, non-resident exposure in Israeli asset markets remains

relatively light (foreigners hold just 4% of the short-term bill, Makam, market) and USD/ILS looks like a currency pair that could quickly snap back were European politicians to make any progress.

Source: Reuters, ING

Our cautious stance this summer keeps us looking for 4.00+, but
USD/ILS could easily trade 3.80 on a ILS short squeeze.
1M 3.90 (3.88) 3M 4.00 (3.89) 6M 4.10 (3.89) 12M 4.25 (3.91)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

FX talkING

June 2012

Bad sentiment should trigger government reaction
2.6 2.4 2.2 2.0 1.8 1.6 1.4 Jan08 ING f'cast Mkt NDF 2.6 2.4 2.2 2.0 1.8 1.6 1.4 Jan09 Jan10 Jan11 Jan12 Jan13

Current spot: 2.06

The BRL continues to underperform. FX outflows intensified in

May, amid intense FX volatility, which led BACEN to boost USD liquidity through FX swap auctions. The next step is for authorities to revise current rules for the tax on FX inflows. It already started with the reversal of part of the IOF tax on external borrowing.

The shift towards a more BRL-supportive FX policy should help

stabilize the Real but recent FX volatility and poor activity indicators have contaminated market sentiment towards Brazil. A massive reassessment of the countrys activity outlook added a higher threshold for the BRL outlook to turn more favourable.

Activity weakness, lower inflation, and continued EU uncertainties

should contribute to extend the monetary easing cycle. We now expect the SELIC to drop an additional 100bp by August, to 7.5%.

Source: Reuters, ING

ING forecasts (NDF)

1M 2.07 (2.08)

3M 2.05 (2.10)

6M 2.00 (2.12)

12M 1.90 (2.17)

Gustavo Rangel, New York + 1 646 424 6465

Domestic politics to hold MXN back
16.5 15.5 14.5 13.5 12.5 11.5 10.5 9.5 Jan08 Jan09 Jan10 Jan11 Jan12 ING f'cast Mkt Fwds Jan13 16.5 15.5 14.5 13.5 12.5 11.5 10.5 9.5

Current spot: 14.04

Near-term dynamics for the MXN continue to relate much to

external conditions. Should market jitters calm down, we could see the MXN gaining traction towards 13.7/USD, a level consistent with current domestic political and economic developments.

July Presidential Elections are setting a support for the MXN.

Although chances of a turnaround in polls are low with the PRI candidate still as the front-runner, political noise is building as the PAN has lost the second place in polls to the left-wing party PRD and protests against the PRI candidate increase.

In the medium term, growth concerns in the US could work

against the MXN. Do not expect to see USD/MXN below the 13.00/USD figure for a while.
3M 13.60 (14.11) 6M 13.66 (14.22) 12M 13.75 (14.42)

Source: Reuters, ING ING forecasts (mkt fwd) 1M 13.71 (14.03)

Debora Luna / Ezequiel Garcia, Mexico City +52 55 5258 2095/2064

Impressive relief rally helped by lower oil prices
700 650 600 550 500 450 400 Jan08 ING f'cast Mkt NDF 700 650 600 550 500 450 400 Jan09 Jan10 Jan11 Jan12 Jan13

Current spot: 501.70

The CLP staged an impressive rally over the past couple of weeks
on the back of expectations that policymakers from China to Europe were prepared to boost monetary stimulus. The sharper drop in oil prices also resulted in a net improvement in Chiles terms of trade, adding support to the Peso.

The challenging global growth outlook still seems to offer little

sustained upside for the CLP (and copper prices) however, so we maintain a more neutral near-term currency outlook.

Inflation dynamics have improved sharply and a continued fall in

oil prices bode well for an additional fall in headline inflation. Relatively strong activity and labour data suggest, however, that the CB is unlikely to shift, once again, to an easing bias. We expect monetary policy to stay unchanged in the near term.
3M 508 (509) 6M 505 (514) 12M 485 (521)

Source: Reuters, ING

ING forecasts (NDF)

1M 503 (505)

Gustavo Rangel, New York + 1 646 424 6465 10

FX talkING

June 2012

FX market tension continues to rise
6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Jan08 Jan09 Jan10 Jan11 Jan12 ING f'cast Mkt NDF Jan13 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0

Current spot: 4.48

FX market tension continues to reach new highs as government

attempts to control the ARS depreciation in the non-official market have largely failed to contain the surge in the premium between the official and non-official FX rate, which is now at close to 40%.

Speculation about additional FX measures continues to generate

unease, with the focus now on legislation aimed at allowing USDdenominated contracts to be settled in Pesos. Officials have denied that this opens the door for local-law USD-denominated debt will be serviced in ARS, but the market remains suspicious.

Poor investor sentiment and draconian FX curbs suggest that the

FX premium will stay high, but we think the USDARS is likely to maintain a gradually depreciating path, as officials still have the willingness and the tools to control FX trends in the official market.
3M 4.65 (5.08) 6M 4.83 (5.58) 12M 5.20 (5.78)

Source: Reuters, ING

ING forecasts (NDF)

1M 4.54 (4.68)

Gustavo Rangel, New York + 1 646 424 6465


FX talkING

June 2012

Steady CNY appreciation replaced by shadowing DXY
7.00 6.80 6.60 6.40

Current spot: 6.3686

7.00 6.80 6.60 6.40

ING f'cast

We believe PM Wens March pronouncement that the CNY was

near equilibrium reset the PBOCs monetary rule from concerted CNY appreciation to one prevailing in much of the rest of AXJ, shadowing DXY. Consistent with the new rule and DXYs big 2.0% appreciation, the PBOC depreciated the CNY by 0.3% in May, the second-biggest depreciation ever after 0.4% in Dec-08.

We have revised our USDCNY forecast in line with INGs house

view that DXY appreciates on a 1-, 3- and 6-month horizon then gives something back over the next six months. The PBOC also cut its policy rates, the 1-year lending and deposit rates, by 25bp to 6.31% and 3.25%, respectively. We expect that inflation will fall below 3%, which we think will be in June data, and it will open doors for more PBOC policy rate and RRR cuts.
3M 6.3993 (6.3685) 6M 6.4182 (6.3855) 12M 6.4036 (6.4198)


6.20 6.00

6.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13

Source: Bloomberg, ING Bank

ING forecasts (mkt fwd)

1M 6.3789 (6.3418)

Tim Condon, Singapore +65 6232 6020

RBI to ease rates to stimulate investment
58 56 54 52 50 48 46 44 42 40 38 Jan08 58 56 54 52 50 48 46 44 42 40 38

Current spot: 55.8 Deteriorating macroeconomic fundamentals, policy hiatus coupled with rising global risk aversion has led to INR shed 6.2% since early May resulting in a net FII equity outflow of US$485m. Recently, INR has been trading range-bound at 55-56 levels. Hitting the nail on the head was the recent release of the 9-year low GDP figures at 5.3% YoY for the quarter ending March-12, prompting S&P to threaten a downgrade of India to junk status.

ING f'cast Mkt NDF Jan09 Jan10 Jan11 Jan12 Jan13

Easing imports growth and over 16% decline in oil prices may
help to cushion some of the concerns of the gaping current account deficit. Efforts are being undertaken by the authorities in fast-tracking the projects which had come to a halt due to complete policy inaction. We expect RBI to cut policy rate by 25bp in the June meeting to prop up growth.
3M 55.00 (56.76) 6M 54.00 (57.63) 12M 52.50 (58.91)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 55.50 (56.02)


Mr Yam drops a bombshell
7.82 7.80 7.78 7.76 7.74
Mkt Fwds ING f'cast

Current spot: 7.7584

7.82 7.80 7.78 7.76 7.74 7.72

Ex-HKMA Chief Joseph Yam caused excitement by questioning of

the virtues of the HKD peg. USDHKD briefly spiked to the 7.75 strong-side undertaking rate, proof that you can get away with anything if you operate from a position of strength. Hes right, of course, but we doubt the end of the peg is near.

Hong Kong and Singapore, which have ceded control of shortterm interest rates to the Fed, have the highest inflation in Asia. Low rates contribute to asset price inflation. And expectations of asset price inflation can boost CPI inflation expectations. We see evidence that this has occurred in both countries.

7.72 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13

We revise our 2012 GDP forecast to 2.8% from 3.5% (consensus

3.0%) on weak 0.4% 1Q12 growth. The official 2012 forecast is 1-3%.

Source: Bloomberg, ING Bank ING forecasts (mkt fwd) 1M 7.7600 (7.7567)

3M 7.7600 (7.7546)

6M 7.7600 (7.7516)

12M 7.7600 (7.7488)

Tim Condon, Singapore +65 6232 6020 12

FX talkING

June 2012

Relies on confidence-sensitive capital
13000 12000 11000 10000 9000 8000 7000 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
NDFs ING f'cast

Current spot: 9451

13000 12000 11000 10000 9000 8000 7000

Indonesia needs confidence-sensitive capital to finance a current

account deficit. Confidence vaporized in May and the authorities had to dip into foreign reserves to the tune of US$4.9bn for BOP financing including exchange market operations. IDR depreciated 1.6%.

We read BIs latest monetary policy statement as a commitment

to curb panic USDIDR buying. However, we do not expect to see the pair below 9,400 in the short term and we have revised our forecast accordingly. Avoiding panic is key for preventing contagion from damaging the economic fundamentals.

We forecast 6.5% GDP growth this year (cons. 6.0%, 6.3% in

1Q). Falling oil price diminishes inflation pressures, including by making an administered fuel price hike unnecessary.

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 9400 (9502)

3M 9400 (9630)

6M 9400 (9777)

12M 9400 (10057)

Tim Condon, Singapore +65 6232 6020

KRW is still attractive to speculators
1600 1500 1400 1300 1200 1100 1000 900 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
NDFs ING f'cast

Current spot: 1166.4

1600 1500 1400 1300 1200 1100 1000 900

KRW depreciated 1.8% (monthly average) and foreign reserves

dropped 1.9%. Their sum, 3.7%, a measure of exchange market pressure, was on the Asian high side. Unlike Indonesia and Thailand, the other big Asian movers, Korea doesnt need hot money to finance a current account deficit; we forecast a US$20bn trade surplus this year. We infer that there was a lot of hot money positioned for KRW appreciation.

KRW remains Asias VIX currency and the IMFs recent citing of
reduced external vulnerability from the macroprudential measures and the build-up of foreign reserves in relation to short-term external debt was premature.

Source: Bloomberg, ING Bank

Activity remains weak and inflation low for Korea. The BOK has
room to ease but we dont think it will. We like KTBs.
1M 1165.0 (1169.1) 3M 1165.0 (1174.1) 6M 1165.0 (1178.5) 12M 1165.0 (1183.9)

ING forecasts (NDF)

Tim Condon, Singapore +65 6232 6020

Opportunistically improving competitiveness
3.90 3.70 3.50 3.30 3.10 2.90 2.70 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
NDFs ING f'cast

Current spot: 3.1861

3.90 3.70 3.50 3.30 3.10 2.90 2.70

Risk-off in May saw the SGDMYR cross push through 2.48, which
is well above what we considered BNMs 2.35-2.45 comfort zone. However, the 0.4% gain in foreign reserves makes us think BNM used risk-off to steal a march on Singapore.

The economy is doing well enough. 1Q12 GDP growth was 4.7%,
forcing us to review our 5% full-year forecast for downward revision (consensus 4.3%). Weak global growth has hit exports, which have been consolidating since early 2011.

Average inflation is low, 2.2% since 2000, with swings typically

driven by the food component. The fading 2011 food price spike is driving disinflation in 2012. We dont see BNM easing. In our view, government bonds are attractive; we are reviewing our 3.3% yearend forecast for the 5-year MGS yield for downward revision.
3M 3.1546 (3.2005) 6M 3.1412 (3.2127) 12M 3.1048 (3.2321)

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 3.1614 (3.1901)

Tim Condon, Singapore +65 6232 6020


FX talkING

June 2012

PHP doesnt attract speculators
50.00 48.00 46.00 44.00 42.00 40.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
NDFs ING f'cast

Current spot: 42.64

50.00 48.00 46.00 44.00 42.00 40.00

Strong, 6.4% 1Q12 GDP growth was in contrast to developments

elsewhere in Asia and the world. Improved fundamentals explain Moodys and S&Ps recent sovereign outlook upgrades.

The 1Q12 GDP data led us to revise our 2012 growth forecast to
5.6% from 4.7%, a lone upgrade against nearly across-the-board downgrades. Solid growth has reframed the monetary policy discussion to being about the timing of a rate hike. Theres no urgency. Inflation is low, 2.9% in May. We expect it to stay near the low end of BSPs 3-5% 2012 inflation target.

The absence of exchange market pressure in May is evidence

that the BSPs low-discretion exchange rate policy has made the PHP unattractive as a speculative vehicle. We prefer the PComp, real estate and fixed income in that order.
3M 43.50 (42.83) 6M 42.25 (42.96) 12M 41.80 (43.22)

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 43.25 (42.73)

Tim Condon, Singapore +65 6232 6020

USDSGD Slavishly shadowing DXY
1.60 1.50 1.40 1.30 1.20 1.10 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Mkt Fwds ING f'cast

Current spot: 1.2817

1.60 1.50 1.40 1.30 1.20 1.10

The MASs S$-NEER policy amounts to an extreme version of the

DXY shadowing policy that is widespread among Asian central banks with undervalued currencies. We estimate the MASs reaction function the percentage change in the USDSGD for a 1% appreciation in DXY at -1.0. INGs forecast of an inverted-V profile for DXY implies the same for USDSGD.

Weak growth and high inflation presents a policy conundrum. The

SGDs 8.4% appreciation last year failed to curb inflation and vaulted the Lion City up the ranks of the worlds expensive cities. Our 2012 GDP growth forecast is 1.9%, revised recently from 2.7%, and inflation forecast is 4.5%.

Source: Bloomberg, ING Bank

We doubt the MAS will entertain alternatives to the S$-NEER

policy in the way ex-HKMA chief Yam did for the HKD peg.
1M 1.2747 (1.2818) 3M 1.2720 (1.2814) 6M 1.2666 (1.2801) 12M 1.2520 (1.2766)

ING forecasts (mkt fwd)

Tim Condon, Singapore +65 6232 6020

Retracement of JPYTWD selloff stalled around 0.38
37.00 35.00 33.00 31.00 29.00 27.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Mkt Fwds ING f'cast

Current spot: 29.95

37.00 35.00 33.00 31.00 29.00 27.00

The 1.5% foreign reserve loss plus currency depreciation in May

was among Asias lowest and indicates little speculative interest in the TWD. We believe this is structural, a feature of the CBCs heavy-discretion policy.

Weak external demand led us to downgrade our 2012 GDP

growth to 1.8% from 3.0% (cons. 2.9%). Exports to China have been a drag since 3Q11, which also has been the case in other large Asian exporters, Korea and Singapore. We see little prospect of monetary policy turning more accommodative.

The CBC manages USDTWD with an eye on the JPYTWD. The

retracement of USDJPYs post-Feb BOJ meeting rally has stalled around 79 and the corresponding retracement of the JPYTWD selloff stalled around 0.38, where we see it persisting.
3M 29.90 (29.88) 6M 29.90 (29.77) 12M 29.90 (29.59)

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 29.90 (29.96)

Tim Condon, Singapore +65 6232 6020


FX talkING

June 2012

Flood snapback cut short by cyclical export weakness
38.00 36.00 34.00 32.00 30.00 28.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Mkt Fwds ING f'cast

Current spot: 31.54

38.00 36.00 34.00 32.00 30.00 28.00

The post-flood activity bounce hit a cyclical headwind, the

slowdown in external demand, and stalled industrial production nearly 10% below its pre-flood level. 2012 growth was always going to be about the snapback from the flood damage and we are reviewing our 3.7% growth forecast for downward revision (cons. 5.0%).

Reconstruction-related imports have driven the trade account into

deficit, which we forecast will turn into a full-year one. The need for confidence-sensitive capital explains the 5.5% combined THB depreciation/reserve loss in May, second to Indonesia.

The BOT has room to ease but we dont expect it to. We think
tight money contributed to slowing post-GFC trend real GDP growth. It risks doing the same to post-flood trend growth.

Source: Bloomberg, ING Bank

ING forecasts (mkt fwd)

1M 31.60 (31.62)

3M 31.50 (31.73)

6M 31.30 (31.87)

12M 31.10 (32.11)

Tim Condon, Singapore +65 6232 6020

The BOP crisis that began in March 2008 is over
24000 22500 21000 19500 18000 16500
NDFs ING f'cast

Current spot: 20950

24000 22500 21000 19500 18000 16500 15000

The SBV announced two 100bp policy interest rate cuts on 28

May and 11 June, taking the refinancing rate to 11% and the discount rate to 9%. Falling inflation has created room for the SBV to ease. Mays 8.34% inflation was the first single-digit print since October 2010.

Vietnam is a big beneficiary from the lower oil price. It narrows the
trade deficit and lowers headline inflation.

The SBV used mini-devaluations to relieve pressure during the

long-running BOP crisis. The narrowing trade deficit and lower inflation signal the end of the crisis. We expect SBV policy will revert to the pre-crisis policy of stabilizing USDVND using heavy exchange market intervention. We forecast a flat profile for the pair on a one-year horizon.
3M 20950 (21533) 6M 20950 (22135) 12M 20950 (23330)

15000 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13

Source: Bloomberg, ING Bank

ING forecasts (mkt fwd)

1M 20950 (21100)

Tim Condon, Singapore +65 6232 6020


FX talkING

June 2012

ING foreign exchange forecasts

Source: Reuters, ING

Spot 1.26 99.7 0.81 1.20 7.51 8.84 7.431 1.29 1.26 1.61 4.31 297 25.5 4.46 7.55 117 41.0 10.20 187.2 2.29 10.59 4.88 2.59 17.64 630 5.63 8.00 9.75 11861 70.11 1465 4.00 53.5 1.61 37.7 39.6

1M 1.22 97.6 0.80 1.20 7.60 9.00 7.430 1.24 1.24 1.58 4.43 300 26.0 4.50 7.55 117 40.1 9.9 182.0 2.3 10.4 4.8 2.50 16.7 613.7 5.5 7.8 9.5 11468 67.7 1421 3.9 52.8 1.6 36.5 38.6

3M 1.18 95.6 0.78 1.20 7.70 9.20 7.427 1.20 1.24 1.57 4.35 295 26.5 4.50 7.56 114 39.9 9.5 176.4 2.2 9.8 4.7 2.4 16.0 599.4 5.5 7.6 9.2 11092 64.9 1375 3.7 51.3 1.5 35.3 37.2

6M 1.15 96.6 0.75 1.20 7.50 9.00 7.425 1.17 1.25 1.58 4.26 285 25.7 4.60 7.57 112 38.0 9.6 172.5 2.1 9.5 4.7 2.3 15.7 580.8 5.6 7.4 8.9 10810 62.1 1340 3.6 48.6 1.5 34.4 36.0

12M USD cross rates 1.20 108.0 0.77 1.20 7.70 9.30 7.435 1.20 1.30 1.67 4.10 285 25.5 4.55 7.57 112 38.5 10.2 177.6 2.1 9.9 5.1 2.3 16.5 582.0 6.2 7.7 9.3 11280 63.0 1398 3.7 50.2 1.5 35.9 37.3







79.3 1.55 0.96 5.98 7.03 5.913 1.026 0.995 0.778 3.43 236.6 20.3 3.55 6.01 93.2 32.6 8.08 149 1.82 8.41 3.88 2.06 14.04 502 4.48 6.37 7.76 9410 55.80 1166 3.19 42.56 1.28 30.0 31.5

80.0 1.53 0.98 6.23 7.38 6.09 1.02 0.98 0.77 3.63 245.90 21.3 3.69 6.19 95.90 32.9 8.09 149.2 1.88 8.50 3.90 2.07 13.71 503 4.54 6.38 7.76 9400 55.50 1165 3.16 43.25 1.27 29.9 31.6

81.0 1.51 1.02 6.53 7.80 6.29 1.02 0.95 0.75 3.69 250.00 22.5 3.81 6.41 96.61 33.8 8.09 149.5 1.86 8.30 4.00 2.05 13.60 508 4.65 6.40 7.76 9400 55.00 1165 3.15 43.5 1.27 29.9 31.5

84.0 1.53 1.04 6.52 7.83 6.46 1.02 0.92 0.73 3.70 247.83 22.3 4.00 6.58 97.39 33.0 8.37 150 1.84 8.25 4.10 2.00 13.66 505 4.83 6.42 7.76 9400 54.00 1165 3.14 42.25 1.27 29.9 31.3

90.0 1.56 1.00 6.42 7.75 6.20 1.00 0.92 0.72 3.42 237.50 21.3 3.79 6.31 93.33 32.1 8.53 148 1.75 8.25 4.25 1.90 13.75 485 5.20 6.40 7.76 9400 52.50 1165 3.10 41.8 1.25 29.9 31.1


FX talkING

June 2012

FX derivatives idea
Using a Synthetic Forward Plus Digital to hedge EUR/RON upside
Looking to hedge Greek bank involvement in Romania and potential RON weakness with FX options
Greece goes to the polls on 17 June amidst much uncertainty. It is hard to pin down a baseline scenario, but we suspect that even if the leftleaning Syriza wins, hurried negotiation can see the troika find new funds for Greece such that Greece stays in the Eurozone. However, there are many moving parts and much could go wrong. And intense speculation over a Greek Eurozone exit and the collapse of the Greek banking system would have a disproportionate impact on the Balkan economies. In Romania, for example, Greek parent banks own 13% of Romanian banking sector assets, worth some 8% of GDP. In a recent report our EMEA team looked the Greek presence in the Balkans and the various policy responses available to local authorities. Even though authorities have FX reserves and IMF/EC support, the RON would likely come under pressure as the market speculated how quickly the shortfall in external funding could be replaced. EUR/RON rallied over 20% during the 2008/2009 Global Financial Crisis. And a worst case Greek scenario could see EUR/RON trade over 5.00. For those looking to hedge RON assets, a FX options strategy can be appropriate. Strategy: Using a one year EUR/RON forward reference of 4.5630, Client buys one year EUR call/RON put, strike 4.5800. Client sells one year EUR put, RON call, strike 4.5800. Client buys a one year Digital (European) EUR call/RON put, strike 5.00 and generating a payout of RON 0.1500 per EUR, should EUR/RON be trading at or above 5.00 on the one year expiry.


If a client is concerned about potential RON sell-off on a worst-case Greek outcome and chooses to hedge, the choice is to buy EUR/RON
at the one year forward of 4.5630 or look at the options market.

Our strategy effectively locks in a synthetic forward hedge at 4.5800, effectively a RON 0.0170 worse rate than the forward. However, we
use that RON 0.0170 give up at inception to finance the purchase of the Digital option, which would improve the realised hedge rate by RON 0.1500 should EUR/RON be trading at or above 5.00 on the one year expiry of the option. If EUR/RON is indeed above 5.00 in one years time, the effective hedge rate is therefore improved to 4.4300 from 4.5800.

This strategy would be suitable for a) a client who has concluded RON assets needs to be hedged for FX risk and b) a strong view that RON
would come under severe pressure in the event of the Greek crisis escalating since the benefit of the strategy is only derived if EUR/RON is above 5.00 in one years time. Chris Turner, Head of FX Strategy, London +44 20 7767 1610
For more detailed discussions on corporate FX hedging strategies, prices and other trade specific requirements, please contact in the first instance your local FX Trading and Sales teams or the following specialists in the Client Solutions Group in Amsterdam, Alexander Schreuder Goedheijt, Fahd El Habti and Michel Hensen on +31 20 563 8171.

Using a synthetic forward plus Digital to hedge EUR/RON upside

5.40 5.20 5.00 4.80 4.60 4.40 4.20 4.00 4.00 4.20 4.40 4.60 4.80 5.00 5.20 5.40

Realised hedging rate on expiry

Spot on expiry Forward Realised hedge rate if EUR/RON trades 5.0000 at expiry
Source: ING

Realised hedge rate if EUR/RON trades < 5.0000 at expiry Spot


FX talkING

June 2012

Research analyst contacts

Developed Markets London Mark Cliffe Rob Carnell James Knightley Chris Turner Tom Levinson Amsterdam Maarten Leen Martin van Vliet Teunis Brosens Dimitry Fleming Padhraic Garvey Jeroen van den Broek Maureen Schuller Alessandro Giansanti Job Veenendaal Roelof-Jan van den Akker Mark Harmer Max Castle Malin Hedman Brussels Peter Vanden Houte Carsten Brzeski Manuel Maleki Julien Manceaux Philippe Ledent Paolo Pizzoli Title Global Head of Financial Markets Research Chief International Economist Senior Economist, UK, US $ Bloc Head of Foreign Exchange Strategy Foreign Exchange Strategist Head of Macro & Consumer Economics Senior Economist, Eurozone Senior Economist, US Senior Economist, Netherlands Global Head of Developed Markets Debt Strategy Head of Developed Markets Credit Strategy Senior Credit Strategist Senior Rates Strategist Quantitative Strategist Technical Analyst Head of Developed Markets Credit Research Credit Analyst Credit Analyst Chief Economist, Belgium, Eurozone Senior Economist, Germany, Eurozone Senior Economist, France Economist, Belgium, Switzerland Economist, Belgium Senior Economist, EMU, Italy, Greece Title Global Head of Emerging Markets Strategy Chief Economist, Brazil, Argentina, Chile, Peru Head of Research & Chief Economist, EMEA Economist, Bulgaria, Croatia Senior Economist, Czech Republic Senior Economist, Hungary Economist, India Economist, Mexico Economist, Mexico Economist, Philippines Chief Economist, CEE Chief Economist, Poland Economist, Poland Economist, Romania Economist, Russia & Kazakhstan Senior Credit Analyst Head of Research & Chief Economist, Asia Economist, Asia Senior Economist, Slovakia Head of Research & Chief Economist, Turkey Senior Economist, Turkey Economist, Turkey Head of Research, Ukraine Financial Markets Research Analyst Telephone Email +44 20 7767 6283 +44 20 7767 6909 +44 20 7767 6614 +44 20 7767 1610 +44 20 7767 8057 +31 20 563 4406 +31 20 563 9528 +31 20 563 6167 +31 20 563 9497 +31 20 563 8955 +31 20 563 8959 +31 20 563 8941 +31 20 563 8801 +31 20 563 8956 +31 20 563 8178 +31 20 563 8964 +31 20 563 8815 +31 20 563 8962 +32 2 547 8009 +32 2 547 8652 +32 2 547 3995 +32 2 547 3350 +32 2 547 3161


+39 02 89629 3630 Telephone +1 646 424 6464 +1 646 424 6465 Email

Emerging Markets New York London Bulgaria H David Spegel Gustavo Rangel Simon Quijano-Evans Elena Ganeva

+44 20 7767 5310 +359 2 917 6720

Czech Rep Vojtech Benda Hungary India Mexico David Nemeth Upasna Bhardwaj Debora Luna Ezequiel Garcia

+420 2 5747 4432 +36 1 255 5581

+91 22 3309 5718 +52 55 5258 2095 +52 55 5258 2064 +632 479 8855 +48 22 820 4698 +48 22 820 4696 +48 22 820 4608 +40 21 209 1393 +7 495 771 7994 +7 495 755 5480 +65 6232 6020 +65 6232 6181

Philippines Joey Cuyegkeng Poland Mateusz Szczurek Rafal Benecki Grzegorz Ogonek Vlad Muscalu Dmitry Polevoy Egor Fedorov

Romania Russia

Singapore Tim Condon Prakash Sakpal Slovakia Turkey Eduard Hagara Sengl Dadeviren Muhammet Mercan mer Zeybek Alexander Pecherytsyn Halyna Antonenko

+421 2 5934 6392 +90 212 329 0752 +90 212 329 0751 +90 212 329 0753 +38 044 230 3017 +38 044 590 3584



FX talkING

June 2012

Disclosures Appendix
ANALYST CERTIFICATION The analyst(s) who prepared this report hereby certifies that the views expressed in this report accurately reflect his/her personal views about the subject securities or issuers and no part of his/her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report. IMPORTANT DISCLOSURES Company disclosures are available from the disclosures page on our website at The remuneration of research analysts is not tied to specific investment banking transactions performed by ING Group although it is based in part on overall revenues, to which investment banking contribute. Securities prices: Prices are taken as of the previous days close on the home market unless otherwise stated. Conflicts of interest policy. ING manages conflicts of interest arising as a result of the preparation and publication of research through its use of internal databases, notifications by the relevant employees and Chinese walls as monitored by ING Compliance. For further details see our research policies page at FOREIGN AFFILIATES DISCLOSURES Each ING legal entity which produces research is a subsidiary, branch or affiliate of ING Bank N.V. See back page for the addresses and primary securities regulator for each of these entities.


FX talkING

June 2012

Tel: 31 20 563 9111 Bratislava Tel: 421 2 5934 6111 Bucharest Tel: 40 21 222 1600 Budapest Tel: 36 1 235 8800 Buenos Aires Tel: 54 11 4310 4700 Dublin Tel: 353 1 638 4000

Tel: 32 2 547 2111 Geneva Tel: 41 22 593 8050 Hong Kong Tel: 852 2848 8488 Istanbul Tel: 90 212 329 0752 Kiev Tel: 380 44 230 3030 Madrid Tel: 34 91 789 8880

Tel: 44 20 7767 1000 Manila Tel: 63 2 479 8888 Mexico City Tel: 52 55 5258 2000 Milan Tel: 39 02 89629 3610 Moscow Tel: 7 495 755 5400 Paris Tel: 33 1 56 39 32 84

Tel: 1 646 424 6000 Prague Tel: 420 257 474 111 Sao Paulo Tel: 55 11 4504 6000 Seoul Tel: 82 2 317 1800 Shanghai Tel: 86 21 2020 2000 Sofia Tel: 359 2 917 6400

Tel: 65 6535 3688 Taipei Tel: 886 2 8729 7600 Tokyo Tel: 81 3 3217 0301 Warsaw Tel: 48 22 820 5018

Research offices: legal entity/address/primary securities regulator

Amsterdam Bratislava Brussels Bucharest Budapest Istanbul Kiev London Manila Mexico City Milan Moscow Mumbai New York Prague Singapore Sofia Warsaw ING Bank N.V., Foppingadreef 7, Amsterdam, Netherlands, 1102BD. Netherlands Authority for the Financial Markets ING Bank N.V., pobocka zahranicnej banky, Jesenskeho 4/C, 811 02 Bratislava, Slovak Republic. National Bank of Slovakia ING Belgium S.A./N.V., Avenue Marnix 24, Brussels, Belgium, B-1000. Financial Services and Market Authority (FSMA) ING Bank N.V. Amsterdam - Bucharest Branch, 48 Lancu de Hunedoara Bd., 011745, Bucharest 1, Romania. Romanian National Securities and Exchange Commission, Romanian National Bank ING Bank N.V. Hungary Branch, Dozsa Gyorgy ut 84\B, H - 1068 Budapest, Hungary. Hungarian Financial Supervisory Authority ING Bank A.S., ING Bank Headquarters, Resitpasa Mahallesi Eski Buyukdere Cad. No: 8, 34467 Sariyer, Istanbul , Turkey. Capital Markets Board ING Bank Ukraine JSC, 30-a, Spaska Street, Kiev, Ukraine, 04070. Ukrainian Securities and Stock Commission ING Bank N.V. London Branch, 60 London Wall, London EC2M 5TQ, United Kingdom. Authorised by the Dutch Central Bank ING Bank N.V., Manila Branch, 20/F Tower One, Ayala Triangle, Ayala Avenue, 1226 Makati City, Philippines. Philippine Securities and Exchange Commission ING Grupo Financiero (Mxico) SA de CV, Bosque de Alisos 45-B, Piso 4, Bosques de las Lomas, 05120, Mexico City, Mexico. Comision Nacional Bancaria y de Valores ING Bank N.V. Milano, Via Paleocapa, 5, Milano, Italy, 20121. Commissione Nazionale per le Societ e la Borsa ING BANK (EURASIA) ZAO, 36, Krasnoproletarskaya ulitsa, 127473 Moscow, Russia. Federal Financial Markets Service ING Vysya Bank Limited, Plot C-12, Block-G, 7th Floor, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051, India. Securities and Exchange Board of India ING Financial Markets LLC, 1325 Avenue of the Americas, New York, United States,10019. Securities and Exchange Commission ING Bank N.V. Prague Branch, Plzenska 345/5, 150 00 Prague 5, Czech Republic. Czech National Bank ING Bank N.V. Singapore Branch, 19/F Republic Plaza, 9 Raffles Place, #19-02, Singapore, 048619. Monetary Authority of Singapore ING Bank N.V. Sofia Branch, 49B Bulgaria Blvd, Sofia 1404 Bulgaria. Financial Supervision Commission ING Bank Slaski S.A, Plac Trzech Krzyzy, 10/14, Warsaw, Poland, 00-499. Polish Financial Supervision Authority

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20 Additional information is available on request